Thanks Hauke. I spoke to an economist friend who explained you’re using the formula for a business, while I’m thinking of the one for government. In government, we’d consider the money you crowdfunded a cost to society as well. (I’d argue mine is more appropriate for a fundraising charity, but at least I understand the difference now!)
In government, we’d consider the money you crowdfunded a cost to society as well.
I’d argue mine is more appropriate for a fundraising charity, but at least I understand the difference now!
Yes, I agree that for all non-profits or public benefit companies a net present value analysis from a societal perspective would be optimal and what we ultimately care about. However, I feel like my analysis is good approximation: of course, the money I crowdfund is a cost to society given the opportunity costs, but the implicit assumption here is that the donor’s money would counterfactually be spent on conspicuous consumption or perhaps ineffective charities. If this is the case, then because the value of increasing consumption in advanced economies is comparatively small and the cost-effectiveness analysis is relatively insensitive to whether we count this, then the business analysis is a good approximation for the societal value and it’s ok to leave it out for simplicity’s sake.
Fundraising charities routinely use “fundraising ratios”, which are benefit-cost ratios and similar to net values, so this seems standard practise.
In the future, I might look more into the true counterfactual societal net value and see whether some of the money donated would have gone to similarly effective charities in the future.
Thanks Hauke. I spoke to an economist friend who explained you’re using the formula for a business, while I’m thinking of the one for government. In government, we’d consider the money you crowdfunded a cost to society as well. (I’d argue mine is more appropriate for a fundraising charity, but at least I understand the difference now!)
Yes, I agree that for all non-profits or public benefit companies a net present value analysis from a societal perspective would be optimal and what we ultimately care about. However, I feel like my analysis is good approximation: of course, the money I crowdfund is a cost to society given the opportunity costs, but the implicit assumption here is that the donor’s money would counterfactually be spent on conspicuous consumption or perhaps ineffective charities. If this is the case, then because the value of increasing consumption in advanced economies is comparatively small and the cost-effectiveness analysis is relatively insensitive to whether we count this, then the business analysis is a good approximation for the societal value and it’s ok to leave it out for simplicity’s sake.
Fundraising charities routinely use “fundraising ratios”, which are benefit-cost ratios and similar to net values, so this seems standard practise.
In the future, I might look more into the true counterfactual societal net value and see whether some of the money donated would have gone to similarly effective charities in the future.
I think EAF did a good job at this where they estimated the money they raised that would not have been donated otherwise.